Puerto Rico's Cooperative Credit Unions' Financial Outlook Is Dire

Addressing a federal oversight board overseeing Puerto Rico’s financial restructuring, Governor Alejandro Garcia Padilla stated that Puerto Rico’s cooperative credit unions face huge financial losses and could collapse.

The island's 116 Coops have suffered large losses in their investment portfolios from the default on Government Development Bank and General Obligation bonds and could suffer larger losses under a broader debt restructuring plan.

The Governor warned that a broader debt restructuring could: cause one-third of all Puerto Ricans to suffer losses on their deposits; reduce lending and economic growth on the island; and cause the collapse of the island's state-insured credit unions as depositors flee to FDIC-insured institutions.

The Governor noted that the cost of protecting credit union depositors, as well as the cooperative credit union system, was estimated at $1.2 billion.

Note: These 116 cooperative credit unions are not insured by the National Credit Union Share Insurance Fund.

Below is the slide from the Governor's presentation.

Deseret First CU Breaks Ground on New HQ Building

Deseret First Credit Union broke ground on the construction of its new corporate office building in West Valley City, Utah.

The 60,000 square-foot, three-story facility will house management, administrative, member service, lending, IT, and other functions of the credit union.

Construction on the facility is expected to be completed in fall 2017.

The cost of the project was not disclosed.

Read the story.

New Mexico CU Mega-Merger Announced

Sandia Laboratory Federal Credit Union and Kirtland Federal Credit Union have announced that they are seeking a merger of the two institutions.

Kirtland is a $760 million credit union. Sandia Laboratory FCU is a $2.3 billion credit union.

If approved, the combined institution will have over $3 billion in assets.

The merger has to be approved by Kirtland's members and the National Credit Union Administration.

Read more.

NCUA Board Proposes to Quadruple the Population Size Limit for a Community Charter to 10 Million

The National Credit Union Administration (NCUA) Board on October 27 proposed to increase the population size of a presumptive community charter for a federal credit union (FCU) to 10 million.

The proposed rule would quadruple the population limit from 2.5 million to 10 million for a well-defined local community (WDLC) consisting of a statistical area or a portion thereof.

The proposal stated that "the Board anticipates that many areas that would qualify as a WDLC will experience population growth over time. The Board therefore believes that its policy should anticipate and accommodate inevitable growth ... in order to maximize the potential membership base available to community credit unions."

In justifying the higher population limit, the proposal stated that the 10 million population limit conforms to the population of the most populous single political jurisdiction approved by the Board (Los Angeles County).

In addition, the Board believes the 10 million population proposal would narrow an inherent imbalance between FCUs and state-chartered credit unions. According to NCUA, there are at least nine states that permit their credit unions to serve a state-wide field of membership.

Furthermore, the proposal would allow an FCU to submit a narrative, supported by appropriate documentation, to demonstrate that the community it wishes to serve qualifies as a WDLC. The appendix to the propose rule identifies thirteen criteria that the agency has historically found "the most useful and compelling ... to demonstrate common interests or interaction among residents of a proposed community."

The proposal will have a 30 day comment period.

Read the proposal.

WSJ: NCUA Provides CUs with Greater Flexibility to Add Members

The Wall Street Journal is reporting that the National Credit Union Administration (NCUA) today finalized a rule that would provide federal credit unions with more flexibility to expand their memberships.

The rule, which could draw a lawsuit from the banking industry, makes more than a dozen changes to the regulator’s policies to broaden the way that credit unions can define their “field of membership,” allowing them to serve larger geographic areas and employee groups.

The rule will become effective 60 days after being published in the Federal Register.

I will have more to say after thoroughly reading the rule.

Read the Wall Street Journal (subscription required).

UDAAP and the Freezing of Delinquent Members Electronic Access to Accounts

The Consumer Financial Protection Bureau (CFPB) accused Navy Federal Credit Union of engaging in "Unfair, Deceptive or Abusive Acts or Practices" (UDAAP) by freezing members electronic access to their accounts after they became delinquent.

Some within the credit union industry have stated that the CFPB's action is usurping a "long standing legal interpretation is that an FCU may limit services to a member who has caused a loss" so long as the member retains the right to vote at the annual meeting and maintain a share draft account.

However, I believe these concerns are overblown. The enforcement order is specific to Navy, not to the industry. Navy can no longer impose electronic account restrictions on members, who become delinquent or overdraw their accounts; beause its practices were unfair and not abusive.

Credit unions can still freeze electronic access to accounts; but need to ensure their practices are fair.

Critics of the CFPB have accused the agency of regulation through enforcement action. I agree with that observation; but it is not going to change any time soon. Therefore, it is important to read the enforcement order and do your due diligence, especially if you are a credit union with at least $10 billion in assets.

Here are some examples of unfair practices from the order.

• Navy froze members access to the accounts without providing adequate notice to the members.
• The electronic account restrictions prevented members from adding travel alerts through mobile platforms.
• The electronic account restrictions disabled the member's ATM and debit cards as well as all ATM functions.
• Navy did not make exceptions for accounts containing protected federal benefits, such as Social Security income or veterans’benefits.

Furthermore, the order found that injuries to members were not reasonably avoidable because policies and practices regarding electronic access and service restrictions were not adequately disclosed at the time the account was opened. This means that credit unions need to look at their account opening process to ensure that members have adequate disclosures.

NCUSIF Estimated Losses of $5.4 Million Between April 1, 2016 and September 30, 2016

The National Credit Union Administration Office of the Inspector General (OIG) reported that losses to the National Credit Union Share Insurance Fund (NCUSIF) between April 1, 2016 and September 30, 2016 were approximately $5.4 million.

In its Semi-Annual Report to Congress, the OIG provided estimates of NCUSIF losses and grounds for closing arising from the liquidation of one credit unions and emergency merger of another credit union.

Also, the OIG had contracted with Moss Adams LLP to conduct a Material Loss Review (MLR) regarding the failures of six federally insured credit union located in Bensalem and Chester, Pennsylvania. All six credit unions outsourced the management, recordkeeping, data processing, and maintenance of financial records to a third party provider, which allegedly caused each institution to fail. The MLR will: (1) determine the cause(s) of the credit unions’ failure and the resulting estimated $3.2 million loss to the Share Insurance Fund; (2) assess NCUA’s supervision of the credit unions; and (3) provide appropriate recommendations and suggestions to prevent future losses.

30 CUs Consent to Fines for Late Filing Call Report in Q1 2016

The number of credit unions consenting to civil money penalties for late filing their Call Reports in the first quarter of 2016 doubled from a year ago.

In the first quarter of 2015, 15 credit unions consented to penalties. Thirty federally insured credit unions consented to civil monetary penalties for filing late Call Reports in the first quarter of 2016.

The 30 credit unions consented to total penalties of $20,036.

Individual penalties ranged from $151 to $6,734. The median penalty was $274.

The assessment of penalties primarily rests on three factors: the credit union’s asset size, its recent Call Report filing history and the length of the filing delay.

Of the 30 credit unions agreeing to pay penalties for the first quarter of 2016:

• Twenty had assets of less than $10 million;
• Nine had assets between $10 million and $50 million; and
• One had assets greater than $250 million.

Five of the late-filing credit unions had been late in a previous quarter.

Read the press release.

List of CUs consenting to civil money penalties.

What Does SBNY's Earnings Report Tell Us About CU's Chicago Taxi Medallion Valuations?

Signature Bank threw in the towel on its Chicago taxi medallion portfolio and made the decision to reserve for or write down each Chicago taxi medallion loans to $60,000.

Here are some highlights from the press release on taxi medallion loans in Chicago.

During the third quarter, Signature Bank had $61.7 million in provisioning expenses for its Chicago taxi medallion portfolio.

According to the press release, $95.1 million of the charge-offs in the 2016 third quarter were for the Chicago taxi medallion portfolio. The remaining Chicago taxi medallion portfolio balance is $58.4 million with an associated allowance for loan losses of $12.6 million for a net exposure of $45.8 million.

As of September 30, 2016, non-accrual loans were $162.8 million of which $140.1 million were taxi medallion loans.

This would suggest that credit unions with Chicago taxi medallion loans will need to recognize losses in their Chicago taxi medallion portfolio.

Read the press release.

Senator Flake and Rep. Luetkemeyer Write NCUA about De-risking

October 19, 2016

The Honorable Rick Metsger
Chairman
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314

Dear Chairman Metsger:

We write regarding the trending practice of “de-risking” and to request information on what action the National Credit Union Administration (NCUA) has taken to address impacts associated with this trend.

As you are no doubt aware, financial institutions have generally noted concerns about enforcement and supervisory risk when terminating certain accounts. In other words, they have likely concluded that they cannot earn a sufficient financial return on these accounts to offset the risk of punitive enforcement action by regulators or prosecutors. Significant uncertainty resulting from a perceived lack of standardization in applying laws related to de-risking compounds the costs in this cost-benefit analysis for credit unions.

To date, the NCUA has neglected to issue any supervisory guidance on the practice and its position remains unclear. However, credit unions in our states have made it clear that the de-risking trend is very real and may result from actions taken by NCUA’s regulatory and supervisory staff to influence a credit union’s decision to exit a line of business or to terminate a customer relationship.

We recognize the critical importance of financial regulatory efforts to combat money laundering and terrorism, as well as the responsibility of credit unions to conduct their due diligence in assessing the nature and risk associated with all customer accounts. However, the implementation of federal anti-money laundering efforts must be pursued with an eye toward unnecessary and unintended impacts to law abiding citizens and businesses. It is important to recognize that the loss of financial access can actually subvert anti-money laundering efforts by driving certain financial activities into untraceable banking alternatives.

Accordingly, we request that you clarify the NCUA position on de-risking and examine your agency’s execution of anti-money laundering regulations and other sanctions laws compliance. Specifically, we are requesting information on whether or not the NCUA has encouraged credit unions to de-risk due to a customer’s specific location or line of business. In addition, please describe the methodologies employed by NCUA to ensure the standardization of examinations of compliance with anti-money laundering laws.

We appreciate your prompt attention to this matter and request a response from you by November 1, 2016.

Sincerely,

Blaine Luetkemeyer
U.S. House of Representatives

Jeff Flake
United States Senate

Bad Deal?

Yesterday, I reported that National Credit Union Administration (NCUA) paid more than $1 billion in contingent legal fees to two law firms regarding lawsuits over the sale of toxic mortgage securities that contributed to the failure of five corporate credit unions during the financial crisis.

These contingent legal fees were approximately 23.2 percent of the total recoveries from the settlement of the lawsuits.

However, Reuters is reporting that legal fees paid by NCUA is more than double the amount paid by the Federal Housing Finance Agency (FHFA).

FHFA paid $406.7 million to law firms that pursued similar set of lawsuits over the sale of toxic mortgage securities. These legal fees were approximately 2 percent of the $18.7 billion FHFA had obtained through settlements and judgments.

Why didn't NCUA negotiate a better deal?

Congress should investigate NCUA's sweetheart deal with these two law firms.

Judge Questions Validity of CU's Arbitration Clause

The PennRecord is reporting that a federal judge is allowing discovery to proceed in a putative class action litigation between FedChoice Federal Credit Union (Lanham, MD) and any members who may have been affected by an arbitration clause in the institution’s Service Agreement.

To be able use FedChoice's inter-bank service, the plaintiff had to agree to accept the Service Agreement. It was either "all or nothing."

However, Judge J. William Ditter Jr. of the U.S. District Court for the Eastern District of Pennsylvania said October 12 the Service Agreement presented by FedChoice contained an arbitration clause of “questionable validity."

The judge noted that the arbitration clause was buried on page 10 of 12 pages of online legalese.

The plaintiff, Sheila Horton, filed a class action lawsuit challenging the fees charged for overdraft protection by FedChoice. FedChoice claims that the parties in the dispute are governed by a broad, written, enforceable arbitration agreement.

Read more.

Corporate CU Lawsuit Legal Contingency Fees Tops $1 Billion

The National Credit Union Administration (NCUA) today disclosed that it has so far paid legal contingency fees to two law firms of $1,003,029,479.

As of Oct. 11, 2016, the NCUA Board has recovered more than $4.3 billion from its lawsuits filed over the failure of five corporate credit unions.

These legal contingency fees represent 23.2 percent of total recoveries from the lawsuits.

Read the press release.

GAO Regulation D Study Looks at Impact on Bank and CU Practices

The Government Accountability Office (GAO) study released on October 18 examines the impact of Regulation D on bank and credit union practices.

Section 19 of the Federal Reserve Act requires depository institutions to maintain reserves against a portion of their transaction accounts solely for the implementation of monetary policy. Regulation D implements section 19, and it also requires institutions to limit certain kinds of transfers and withdrawals from savings deposits to not more than six per month or statement cycle if they wish to avoid having to maintain reserves against these accounts.

Reserve requirements are an implicit tax on banks and credit unions. However, the authority for the Federal Reserve to pay interest on reserves has reduced some of the costs associated with reserve requirements.

GAO found that 12,135 depository institutions were subject to Regulation D’s requirements, as of June 2015. Fifty-two percent were credit unions, while 48 percent were banks.

Eighty-six percent of banks were required to satisfy reserve requirements in contrast to 23 percent of credit unions. Sixty-five percent of banks had net transaction account balances reservable at the 3 percent ratio and 20 percent of banks were reservable at the 10 percent ratio. Of the 23 percent of credit unions that were required to satisfy reserve requirements, the majority (79 percent) had net transaction deposits reservable at the 3 percent ratio.

As part of its study on Regulation D, GAO surveyed 892 depository institutions with a response rate of 71 percent. Below are some of the findings from the report.

GAO found banks were more likely than credit unions to enforce the transaction limit to implement Regulation D’s requirements, with an estimate of 89 percent versus an estimate of 59 percent.

GAO estimated that 63 percent of banks charged fees after the sixth transaction on savings accounts compared to 55 percent of credit unions. For money market accounts, GAO found that 90 percent of banks charged fees after sixth transaction compared with an estimate of 63 percent of credit unions.

Banks tended to report lower fees for savings accounts, with an estimated median of about $2 for banks and an estimated median of about $4 for credit unions. The median fee for money market accounts was about $5 for both banks and credit unions.

GAO found that more credit unions than banks (an estimated 54 percent versus an estimated 6 percent for savings accounts and an estimated 55 percent versus an estimated 4 percent for money market accounts) prohibited the seventh transaction when the six transaction limit was reached.

GAO also noted that banks were more likely to employ retail sweeps program to reduce the amount of reservable net transaction accounts than credit unions. Fifteen percent of banks and 2 percent of credit unions employed retail sweeps program to reduce transaction account reserves.

In addition, the study surveyed banks and credit unions about the biggest challenges associated with monitoring and enforcing the transaction limit with the top challenge getting customers to read Regulation D disclosures.

There is more information in the report. Click on the link below to see more of the results from the survey.

Read the study.

Members Choice Credit Union Builds New HQ

Members Choice Credit Union (Houston, TX) will move to a new 80,000-square-foot, four-story building by October 2017, according to the Houston Business Journal.

Construction began in August on the new building.

The company plans to occupy up to three floors of the building and lease out the remaining space to tenants.

The price tag of the project was not disclosed.

Read the story.

Was NCUA AWOL on Navy's Improper Debt Collection Practices?

It appears that the National Credit Union Administration (NCUA) was "absent without leave" (AWOL) with respect to Navy Federal Credit Union's improper debt collection practices.

Only the Consumer Financial Protection Bureau (CFPB) issued an enforcement order about Navy's collection practices and required Navy to make restitution to members harmed by its collection practices.

However, NCUA, which is the primary safety and soundness regulator of Navy, did not take any action against Navy Federal Credit Union at this time.

In comparison, the Office of the Comptroller of the Currency issued an enforcement order against Wells Fargo over its sales practices in coordination with the CFPB.

Why didn't NCUA coordinate enforcement actions with CFPB?

Does NCUA believe that improper debt collection practices and the freezing of members electronic access to their accounts are a safety and soundness concern?

I suspect that this improper debt collection practice at Navy is not an isolated event. There are probably other credit unions that are engaged in questionable debt collection practices.

It seems to me that NCUA should make examining the debt collection practices of credit unions an important part of any consumer compliance exam.

NCUA's silence on this issue is deafening.

NCUA to Fully Repay U.S. Treasury Borrowings by October 31

The National Credit Union Administration (NCUA) plans to fully repay by October 31 the $1 billion outstanding balance on the agency’s borrowing line with the U.S. Treasury.

When that payment is made, the Temporary Corporate Credit Union Stabilization Fund’s outstanding borrowings from the U.S. Treasury will be repaid in full.

However, the agency noted no funds will be available to provide federally insured credit unions with an immediate rebate of Stabilization Fund assessments. Additionally, no funds are available for any recoveries by investors with claims for depleted capital of the failed corporate credit unions. NCUA must first satisfy any outstanding senior obligations of the Stabilization Fund and corporate credit union asset management estates.

With the repayment of borrowings from the U.S. Treasury, credit unions could be eligible for a dividend payment from the National Credit Union Share Insurance Fund (NCUSIF), if the NCUSIF is above the normal operating level and the NCUA Board declares a dividend.

Read the press release.

Del-One FCU Buys Naming Rights to Community College Conference Center

Del-One Federal Credit Union (Dover, DE) paid $500,000 for the naming rights to a conference center at Delaware Technical Community College's Terry campus.

The $500,000 payment will fund scholarships for veterans, general campus needs and renovations to the conference center.

The agreement includes naming privileges for a period of 30 years, as well as branded signage.

Read the press release.

Unanswered Questions Regarding Navy's Debt Collection Enforcement Action

After reading the Consumer Financial Protection Bureau's enforcement order against Navy Federal Credit Union, the enforcement order left numerous unanswered questions about Navy's improper debt collection practices.

It is hard to believe that low level collection staff did this on their own. Therefore, who was responsible for the decision to implement these improper collection practices?

According to the enforcement order, Navy illegally froze electronic account access and services for about 700,000 accounts after members became delinquent on loans and did not provide adequate notice about the impending electronic account freeze. Who ordered shutting off delinquent members electronic access to their accounts?

Navy sent form letters to delinquent members threatening legal action, wage garnishment, and to contact servicemembers commanding officers. Did Navy's compliance staff review the threatening form letters that were sent out by the credit union? If not, why not?

Did Navy's collection department have an incentive pay program that could have contributed to this bad behavior by collection department employees?

Did managers pressure front line collection staff to engage in improper collection practices?

When was Navy FCU's senior management and board of directors made aware of the improper debt collection practices? The same question should be asked to the credit union's supervisory committee?

How many employees have been disciplined, reprimanded, or subject to additional training for disclosing debts to third parties or making threats Navy Federal could not legally take or did not intend to take?

Has Navy FCU terminated any managers who were involved in these improper debt collection practices?

Were these abusive debt collection practices in place before January 1, 2013? If so, how long have these practices been going on?

The Office of the Comptroller of the Currency issued a consent order against Wells Fargo at the same time the Consumer Financial Protection Bureau issued its enforcement order. Why didn't the National Credit Union Administration (NCUA), the primary safety and soundness regulator of Navy, issue a consent order against Navy FCU at the same time the Consumer Financial Protection Bureau issued its enforcement order?

Were these abusive practices occurring when Navy FCU was under NCUA oversight? If yes, why didn't NCUA address the issue?

Hopefully when Congress returns to town after the election, it will investigate Navy FCU's improper debt collection practices and get to the bottom of these questions and more. It is important for Congress to investigate because Congress provides Navy FCU a significant benefit via its exemption from the federal corporate income tax.

Georgia's Own CU Places Name Atop 32-Story Atlanta Office Tower

Georgia’s Own Credit Union is relocating its headquarters downtown and putting its name atop a 32-story Atlanta landmark on Peachtree Street — The Equitable Building.

Georgia’s Own will lease about 100,000 square feet at the Equitable Building or about 20 percent of the building.

A source familiar with the Atlanta commercial real estate market stated that if the tenant is above a certain size, signage is a concession in the lease.

Read the story.

Smart Financial Credit Union Buys Naming Rights to New Entertainment Venue

Smart Financial Credit Union (Houston, TX) with almost $658 million in total assets recently inked a major branding deal.

The Houston-based credit union signed a five-year term with a five-year option to extend for naming rights to Sugar Land’s new entertainment venue, which will be known as the Smart Financial Centre.

The deal is valued at $6.7 million.

The performance venue is scheduled to open in January.

Read the story.

Navy's Debt Collection Practices Is Why CUs Should Not Be Exempt from CFPB

News about Navy Federal Credit Union's improper debt collection practices makes the case that credit unions should not be carved out from the regulations and oversight of the Consumer Financial Protection Bureau (CFPB).

Credit union trade groups have argued that credit unions should be outside of the purview of the CFPB.

In justifying their exemption from the CFPB, credit union trade groups have contended that credit unions are customer friendly. They state that credit unions wear the "white hat" and are not the bad actors of the financial services industry.

For example, Dan Berger, CEO and president of the National Association of Federal Credit Unions, recently wrote that "[t]he relationship between the credit union and its member is based on fairness and responsible practices."

Oh really.

Do you consider Navy Federal Credit Union's improper debt collection practices as being customer friendly?

Is threatening members responsible practices?

Is deceiving members consistent with fairness?

Policymakers should resist the call from credit unions to be exempt from CFPB oversight and regulations.

Bank and CU Regulators Differ on MLA Compliance

While banks and credit unions are subject to many of the same laws and regulations, there are differences in how bank and credit union regulators examine their respective institutions with regard to compliance to these laws and regulations.

The latest example regarding the different approaches employed by bank and credit union regulators involves early testing for compliance with the Military Lending Act (MLA).

According to Ballard Spahr's CFPB Monitor,

"On September 29, the FFIEC released revised Interagency MLA examination procedures that appear parallel to those issued by the Bureau. The release of these updated procedures suggests that regulators do not intend to postpone transactional testing for MLA compliance as trade groups had requested. In contrast, the NCUA has instructed examiners to accept a credit union’s reasonable and good faith efforts to comply with the final rule during the first examination following the implementation date."

Once again, NCUA is the kinder and gentler regulator.

CFPB Fines Navy FCU $28.5 Million for Improper Debt Collection Practices

The Consumer Financial Protection Bureau (CFPB) took action against Navy Federal Credit Union (Vienna, VA) for making false threats about debt collection to its members, which included active-duty military, retired servicemembers, and their families.

The CFPB found that Navy Federal Credit Union deceived consumers to get them to pay delinquent accounts. The credit union falsely threatened severe actions when, in fact, it seldom took such actions or did not have authorization to take them. The credit union also cut off members’ electronic access to their accounts and bank cards if they did not pay overdue loans.

The CFPB found that hundreds of thousands of consumers were affected by these practices, which occurred between January 2013 and July 2015.

Navy Federal Credit Union will pay roughly $23 million in redress to victims along with a civil money penalty of $5.5 million.

In addition, the credit union must create a comprehensive plan to address how it communicates with its members about overdue debt. This includes refraining from any misleading, false, or unsubstantiated threats to contact a consumer’s commanding officer, threats to initiate legal action, or misrepresentations about the credit consequences of falling behind on a Navy Federal Credit Union loan.

Furthermore, Navy Federal Credit Union cannot block its members from accessing all their accounts if they are delinquent on one or more accounts. The credit union must implement proper procedures for electronic account restrictions.

Read the enforcement order.

Chicago Taxi Medallion Prices in Q3 Are Down 75 Percent from Two Years Ago

The City of Chicago reported that the average taxi medallion prices for the third quarter of 2016 was $75,250.

The median taxi medallion price was $67,500.

There were 12 transactions during the quarter. Taxi medallion prices ranged between $38,500 and $202,500. The 202,500 appears to be an outlier.

In the third quarter of 2014, taxi medallion prices in Chicago ranged between $250,000 and $357,000 with an average price of $304,875.

This would indicate that taxi medallion prices on average are down almost 75 percent from two years ago.

Below are the taxi medallion transfers for Chicago closed during the third quarter of 2016.

Moreover, it is unlikely that medallion values in Chicago will improve after a recent decision by the 7th Circuit Court of Appeals. Judge Richard Posner rejected the taxi companies' arguments regarding ridesharing services, such as Uber, as anti-competitive. Read the decision.

This indicates that credit unions, which financed taxi medallion loans in Chicago, will face significant impairment charges on these loans.

Consumer Credit at Credit Unions Grew by Almost $6.8 Billion in August

Outstanding consumer credit at credit unions grew in August at credit unions, according to the Federal Reserve G.19 report.

Outstanding consumer credit rose from $362.8 billion in July to $369.6 billion in August.

Both revolving and nonrevolving credit grew in August.

Revolving credit at credit unions increased by almost $500 million to $50.8 billion.

Nonrevolving credit rose by approximately $6.2 billion in August to $318.8 billion.

Read the report.

NCUA Working Group Releases Report to Improve Exam Process

The National Credit Union Administration's Exam Flexibility Initiative working group will submit 10 recommendations to the NCUA Board during the Board's November 17 open meeting to improve the examination process.

The following recommendations would become effective January 1, 2017, if approved by the NCUA Board:

• An extended examination cycle for well managed, low-risk federal credit unions with assets of less than $1 billion;
• Enhanced examinations of small federal credit unions;
• Enhanced coordination of exams for federally insured, state-chartered credit unions; and
• Establishment of an NCUA and state supervisor working group.

NCUA could make other changes as of July 1, 2017, including improvements in examination planning and the issuance of a post-exam survey.

For a federal credit union to qualify for an extended examination cycle, NCUA defines a well managed, low risk federal credit union, as a CAMEL code 1 or 2, both in composite and management rating components; less than $1 billion in assets; well capitalized per prompt corrective action regulations; no documents of resolution related to significant recordkeeping deficiencies; and no formal or informal enforcement or administrative order, such as a cease and desist order, letter of understanding and agreement, or preliminary warning letter. For qualifying credit unions, examinations will generally begin between 14 and 20 months from the prior examination completion date.

However, federal credit unions that do not meet the above criteria examinations will generally begin between 8 and 12 months from the prior
examination completion date.

Read the report.

Democratic Lawmakers Call for Strengthening the Proposed Clawback Rule

Congresswoman Maxine Waters (D-CA), Ranking Member of the House Committee on Financial Services, and 10 Committee Democrats urged financial regulators to strengthen a proposed “clawback” rule regarding when a financial institution must revoke senior executives’ bonuses.

In a letter to the Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, National Credit Union Administration, Federal Housing Finance Agency, and Securities and Exchange Commission, Democratic lawmakers expressed concerns with the “excessive level of discretion” granted to firms in executing clawbacks for misconduct, fraud, or misrepresentation in the proposed rule.

"We do not believe that strong public policy goals are served by giving large banks and other financial institutions the choice as to whether to clawback executive bonuses in the face of widespread misconduct."

Th letter states that there is a reluctance in the board of directors to punish senior management and advocates that the agencies provide "less optionality to covered institutions when it comes to holding senior executives accountable."

Read the letter.

NCUA Requests CFPB Exempt PALs from Payday Lending Rule

National Credit Union Administration (NCUA) Board Chairman Rick Metsger wrote the Consumer Financial Protection Bureau (Bureau) to exempt payday alternative loan (PALs) made by federal credit unions (FCUs) from the Bureau's final payday lending rule.

“We respectfully request the Bureau exempt FCUs completely from its final rule for loans made under and consistent with NCUA’s PALs regulation,” Metsger said in his letter. “As the prudential regulator for federal credit unions, NCUA already ensures that members receive the type of protections the Bureau is seeking to address. The Bureau should therefore defer to determinations of the FCU prudential regulator about this product."

In addition, NCUA recommended that the Bureau provide a small creditor exemption for credit unions making fewer than a threshold number of covered transactions during the preceding year. NCUA contends that without a small creditor exemption, small credit unions may be kept from extending short term, small dollar loans to their members due the increased compliance burdens.

Also, NCUA requested that Bureau clarifies in its "final rule that it does not intend to narrow or otherwise alter the circumstances in which a credit union can use a Congressionally-authorized statutory lien."

Furthermore, "the Bureau proposes a second exemption from the ability-to-repay (ATR) requirements for longer-term loans. The availability of the second exemption depends partially on whether a creditor has a default rate of not more than five percent in the creditor’s portfolio of similar loans. NCUA recommends the Bureau consider a slightly higher default rate."

Read the letter.

CU Discount Window Borrowings, Q3 2014

During the third quarter of 2014, 179 credit unions borrowed from the Federal Reserve's Discount Window.

In comparison, 160 credit unions borrowed from the Discount Window during the second quarter of 2014 and 76 credit unions borrowed from the Discount Window a year earlier.

The Federal Reserve is required by law to disclose with a two year delay information on borrowings from the Discount Window.

Credit unions borrowed from the Federal Reserve's Discount Window 237 times. The aggregate amount borrowed from the Discount Window was almost $311.8 million.

The average amount borrowed was approximately $1.3 million, while median amount borrowed was much smaller at $10,000.

The vast majority of the borrowing was from the Federal Reserve's primary credit program. Two credit unions access the Federal Reserve's seasonal credit program, while one credit union borrowed from the secondary credit program.

Primary credit is a lending program available to depository institutions that are in generally sound financial condition. Secondary credit is available to depository institutions that are not eligible for primary credit. The seasonal credit program assists small depository institutions in managing significant seasonal swings in their loans and deposits.

The most active credit union borrower was Firefighters Community CU (Cleveland, OH), which borrowed 12 times from the Discount window; followed by Town & Country CU (Minot, ND) which went to the Discount Window 10 times.

HMDA: Credit Unions Originated 9 Percent of All Mortgages in 2015

Credit unions in 2015 accounted for 9 percent of all mortgage originations, according to Home Mortgage Disclosure Act (HMDA) data.

There were 1,971 credit unions that filed HMDA data.

The following information appears in Table 10 in this report.

In 2015, HMDA filing credit unions had slightly more than 1.1 million applications and 670 thousand originations.

According to 2015 HMDA data, 1,061 credit unions had fewer than 100 loans and 419 credit unions had less than 25 loans.

Approximately 5 percent of home-purchased loans by credit unions were higher-priced loans. Credit unions accounted for slightly more than 15 percent of higher-priced home-purchased loans.

Higher-priced first-lien loans are defined as those with an annual percentage rate (APR) of at least 1.5 percentage points above the average prime offer rate (APOR) for loans of a similar type (for example, a 30-year fixed-rate mortgage). The spread for junior-lien loans must be at least 3.5 percentage points for such loans to be considered higher priced.

Credit unions originated 14.8 percent of their home-purchased loans to minority borrowers. In comparison, almost 20 percent of such loans went to minority borrowers.

Credit unions sold less than one-half of the home-purchase loans they originated and a little more than one-third of the refinance loans they originated.

Affinity Plus FCU Signs Multi-Year Marketing Agreement with Gopher Atletics

Affinity Plus Federal Credit Union (Minneapolis, MN) and Gopher Athletics announced the signing of a multi-year marketing agreement.

According to the agreement, Affinity Plus will sponsor signage beginning this fall at four University of Minnesota venues. Signage will be on display in the Williams, Ridder and Mariucci Arenas, and at the Sports Pavilion.

No financial terms of the deal were disclosed.

Read the press release.

Texas Regulator Cautions CUs About Poor Member Service

The Texas Credit Union Department in its September newsletter wrote state chartered credit unions about poor member service.

The state credit union regulator stated that it is receiving a large number of the complaints that start off about poor member service and that this trend is growing.

The Texas Credit Union Department notes:

"How a member is personally treated ... is not a regulated area, but poor member service generates complaints that credit unions nevertheless must spend time responding to and investigations. Reminding your employees that common courtesy and treating members with respect is the best policy and can save the credit union time and money."

The state credit union regulator provided tips to credit unions on how to handle upset members, such as listening to the member without interruption and being respectful.

The state regulator reminded credit unions to treat members like you would want to be treated.

Read the newsletter.